Layoffs at federal housing agencies could hurt Seattle-area homebuyers

Uncertainty around substantial layoffs in federal housing agencies has sparked concerns over a popular loan program for first-time homebuyers. 

Reports swirled this month about deep job cuts at the U.S. Department of Housing and Urban Development and the Federal Housing Administration, with some estimating that 40% of FHA staff was on the chopping block.  

The scale of layoffs at HUD, which overseas the FHA, remained unclear Tuesday, but Sen. Patty Murray, D-Wash., said in a statement, “Trump and Elon Musk’s mass layoffs across the federal government have been about as methodical as a wrecking ball.”  

Murray and Sen. Maria Cantwell, D-Wash., joined 23 other Senate Democrats in requesting information about the layoffs at HUD last week in a letter directed to HUD Secretary Scott Turner. The senators also requested more information about a statement that the Department of Government Efficiency has identified $260 million in wasteful contracts at HUD. 

In a statement to The Seattle Times, a HUD spokesperson didn’t address the number of layoffs in either organization. 

“HUD will focus on efficient and effective use of taxpayer dollars while prioritizing the critical role FHA plays in the mortgage market,” the spokesperson said. The statement also said the “American dream of homeownership” will be more attainable under President Donald Trump and Turner. 

If massive layoffs seen in other government agencies hit the FHA, it could disrupt loan programs critical to many first-time homebuyers. In the Seattle area, where rising home prices and high mortgage rates continue to keep homeownership out of reach, it would be another blow to getting an affordable mortgage.  

The FHA runs various programs for low- and-moderate income borrowers, and first-time homebuyers nationally make up about 80% of its borrowers.  

In the Seattle-Tacoma-Bellevue area, homebuyers took out 4,867 standard FHA residential loans last year through September, and 7,404 and 6,116 for the full years of 2022 and 2023, respectively, according to Attom, a property data provider. FHA loan counts in the area hit a recent peak of 14,622 in the pandemic year of 2020.  

FHA loan programs are popular because homebuyers can put a smaller down payment on the loan, as little as 3.5% of the purchase price. Also, buyers with lower credit scores can qualify for the mortgages. 

FHA programs also include reverse mortgages for older adults and home-purchase loans that roll in the costs of renovations. The agency has programs for buyers and builders of multifamily properties, including condominiums and rental apartments. 

Scott Olson, executive director of the Washington, D.C.-based Community Home Lenders of America, said staff problems, if they occurred, could cause delays in “various ways,” particularly in cases where FHA staff do the risk analysis and approvals.  

FHA staff do “manual underwriting” when the loans don’t quite meet its credit score and income guidelines. Some condo loans also require FHA approval.   

Most borrowers of standard FHA loans, however, probably won’t notice any change, at least initially. That’s because in most cases lenders do the risk analysis, known as underwriting, to determine eligibility and can also approve the loan through the agency’s automated system.  

Dietrich Miklautsch, a sales manager at Bellevue-based Guild Mortgage, said he doesn’t foresee disruptions for the average borrower in the event of FHA staff cuts. 

“We have our own underwriters and our ability to handle everything in house,” he said. “Everything, as of now, looks normal.” 

Ryan Halvorson, the owner of Halvorson Mortgage in Fall City, was hopeful that the Trump administration would not gut FHA departments involved in loan operations.  

“This is such a vital service or program that the government provides,” Halvorson said. “It would seem to me this would be pretty far down on the list of things that they would cut back or eliminate.”  

Murray warned that layoffs at the FHA would “make it more difficult for mortgage lenders to make loans, and for homebuyers to get an affordable mortgage, especially if they are first-time borrowers or on limited incomes.”  

FHA borrowers, particularly in a pricey competitive market like Seattle, have little margin for delays in loan approvals. They can be at a disadvantage when competing against borrowers with conventional loans or cash buyers.  

“There’s that stigma there,” said Danny Greco, a Seattle-based real estate agent. Sellers worry that FHA loans may take longer for approval and are more likely to run into problems at closing, Greco said.  

“Comparing buyer profiles next to each other and one’s got a heck of a lot more money for a down payment that’s generally considered a safer bet for the seller,” Greco said. However, a delay of a day or two probably would not “be too consequential,” he added.    

Another area of concern is behind the scenes and involves how FHA loans are ultimately funded. The FHA insures loans that banks and mortgage lenders fund. This insurance covers the lender if a borrower defaults, which lowers the lender’s risks and allows them to continue making the loans.  

FHA loans are pooled by banks and other approved issuers into securities, which are guaranteed by another HUD agency, Ginnie Mae, and the securities are sold to investors. The bonds have the full backing of the U.S. government, guaranteeing the interest payments to the bond investor. This ensures that the investors take on less risk, and that the loans can be broadly available at low interest rates to buyers, including traditionally underserved borrowers.  

According to Bloomberg, Ginnie Mae has also had layoffs in recent days, which could discourage investors.